New Delhi, 29 December 2024– India is mulling income tax cuts for individuals earning up to ₹15 lakh annually in the upcoming budget, aiming to ease the financial burden on the middle class and stimulate consumption amid a slowing economy, according to two government sources.
The potential changes, expected to benefit millions of taxpayers, primarily urban residents grappling with steep living costs, could make the 2020 tax system more appealing. Under this structure, annual incomes between ₹3 lakh and ₹15 lakh are taxed at rates ranging from 5% to 20%, while higher incomes face a 30% tax.
Indian taxpayers currently choose between two systems: the older regime allowing exemptions for expenses like housing rentals and insurance or the newer, exemption-free system introduced in 2020 with marginally reduced rates.
Sources privy to the discussions, speaking on condition of anonymity due to the sensitivity of the deliberations, said a decision on the extent of the cuts would likely be finalized closer to the budget announcement on February 1. The finance ministry did not respond to requests for comment.
One source noted that lowering rates could simplify the process for taxpayers, encouraging a shift toward the newer regime. “A streamlined structure could attract more people to the new system,” the source added, without disclosing potential revenue implications.
India, the world’s fifth-largest economy, collects a significant portion of its income tax revenue from individuals earning over ₹10 lakh annually, who are taxed at 30%. The proposed relief could provide the middle class with more disposable income, potentially spurring economic activity.
Economic growth slowed to a seven-quarter low between July and September, while rising food inflation has curbed consumer demand for products ranging from daily essentials to vehicles. Policymakers are banking on increased middle-class spending to counter these challenges.
